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RIM's Last Growing Business Is Under Attack!

It exists! For now.

Here's something you may not have realized still existed: a growing business for Research In Motion(Nasdaq: RIMM)! That's right, my Foolish reader, this mythical creature still lives.

Prove itThis may not coincide well with anecdotal knowledge of RIM's spectacular fall from grace over the past few years, largely at the hands of Apple(Nasdaq: AAPL). But believe you me, friend, it's true. I've seen it with mine own eyes. Behold, the last fortress of revenue growth within the once-mighty RIM.

Source: Earnings press releases. TTM = trailing 12 months.

There you have it, robust growth within RIM's service revenue, which has brought in $4.1 billion in sales over the past four quarters. These lucrative service fees are charged to wireless carriers for BlackBerry users to tap into RIM's extensive service infrastructure, massive outages notwithstanding.

Service revenue continues to climb as a percentage of overall sales, hitting a high of 36% last quarter.

Source: Earnings press releases.

Of course, a major factor in that rise in its contribution to the top line is that hardware revenue is plunging... fast.

Source: Earnings press releases. Device shipments includes PlayBook tablets and may not be indicative of actual device sell-through.

Unfortunately for RIM investors, this last speck of growth in its business may very well be under attack as we speak.

Gloomy forecastAs part of its outlook last month, RIM cited "pressure to reduce RIM's monthly infrastructure access fees" as one contributing factor to its "challenging" future. According to a recent Bloomberg report, wireless carrier partners including AT&T(NYSE: T) and Verizon(NYSE: VZ) are among those asking the struggling gadget maker to cut these fees, passing along the pressure they're feeling from subscribers looking for lower monthly bills. Crumbling demand for BlackBerrys also isn't doing Research In Motion any favors.

More popular devices from Apple or Google's Android don't come with these types of fees, and the value that RIM's services provide is also rather dubious. RIM's BlackBerry Internet Service, or BIS, primarily provides things like access to its popular BlackBerry Messenger, or BBM, service and other features like push email.

The carrier itself can provide the majority of these services with its own network infrastructure. Apple's iMessage is also a direct shot at BBM as a proprietary messaging service among its users that the iPhone maker operates, but it does so at no additional charge to carriers.

A RIM spokesman vaguely said, "RIM intends to continue generating a revenue stream from the services we offer." Yes, but how much?

How much, indeed?Various analysts weighed in with some estimates. Northern Securities analyst Sameet Kanade said, "There's definitely negotiations going on right now." He estimates that services revenue could fall to $3.4 billion this year and further deteriorate to $2.8 billion in fiscal 2014. Sanford Bernstein analyst Pierre Ferragu pegs fiscal 2014 services revenue at $2.7 billion, falling to $2.3 billion in fiscal 2015.

That services segment is providing much-needed cash as hardware sales plummet, buying RIM some time. It now has $2.2 billion in cash and equivalents and still generates positive operating cash flow, $711 million last quarter. However, it has posted net losses of $643 million over the past two quarters.

Interestingly, even though RIM is literally betting everything on its next-generation BlackBerry 10 platform, R&D spending has actually decreased to $368 million, down from $423 million a year ago. No wonder BB10 is delayed, again.

CEO Thorsten Heins won't even admit that there's something wrong, although he admits things are "challenging" right about now. That's the understatement of the year, as the other major component of RIM's business also seems to be peaking with nothing but downside in store, much like the hardware segment peaked nearly two years ago.

Author

Evan is a Senior Technology Specialist at The Motley Fool. He was previously a Senior Trading Specialist at Charles Schwab, and worked briefly at Tesla. Evan graduated from the University of Texas at Austin, and is a CFA charterholder.